D.R. Horton

A reddit comment claimed DR Horton used escalation clauses in their contracts for North Texas. “My realtor mentioned that DR Horton added in an escalation clause to their contracts. This is in North Texas.” (Reddit, 6/6/2021, via internet archive)

D.R. Horton said it was strategically selling homes at a slower paces while passing price increases onto new home buyers without concern for contract cancelation

D.R. Horton’s CEO crowed to analysts that their revenues had increased 24%. “David Auld — President and Chief Executive Officer: Thank you, Jessica, and good morning. I am pleased to also be joined on this call by Mike Murray and Paul Romanowski, our executive vice president and co-chief operating officers; and Bill Wheat, our executive vice president and chief financial officer. D.R. Horton team delivered an outstanding second quarter, highlighted by a 59% increase in earnings to $4.03 per diluted share. Our consolidated pre-tax income increased 60% to $1.9 billion on a 24% increase in revenues. And our consolidated pre-tax profit margin of 520 basis points to 23.5%. Our homebuilding return on inventory for the trailing 12 months ended March 31st was 40.3%, and our consolidated return on equity for the same period was 34%. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Hortons COO: “Our average closing price for the quarter was $378,200, up 21% from the prior-year quarter, while the average size of our homes closed was down 1%.”“Mike Murray — Executive Vice President and Co-Chief Operating Officer: Earnings for the second quarter of fiscal 2022 increased 59% to $4.03 per diluted share compared to $2.53 per share in the prior-year quarter. Net income for the quarter increased 55% to $1.4 billion, compared to $930 million. Our second quarter home sales revenues increased 22% to $7.5 billion on 19,828 homes closed, up from $6.2 billion on 19,701 homes closed in the prior year. Our average closing price for the quarter was $378,200, up 21% from the prior-year quarter, while the average size of our homes closed was down 1%. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton’s COO said their average sales price was up over 20% from 2021 and “We are continuing to sell homes later in the construction cycle to better ensure the certainty of the home close date for our homebuyers with virtually no sales occurring prior to the start of home construction. “ “Paul Romanowski — Executive Vice President and Co-Chief Operating Officer: Our net sales orders in the second quarter decreased 10% to 24,340 homes, while the value increased 10% from the prior year to $9.7 billion. Our average number of active selling communities increased 1% from the prior-year quarter and was up 4% sequentially. The average sales price of net sales orders in the second quarter was $400,600, up 23% from the prior-year quarter. The cancellation rate for the second quarter was 16%, compared to 15% in the prior-year quarter. New home demand remains very strong despite the recent rise in mortgage rates. We are continuing to sell homes later in the construction cycle to better ensure the certainty of the home close date for our homebuyers with virtually no sales occurring prior to the start of home construction. We expect to continue managing our sales pace in the same manner for the rest of the year. Bill? ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton’s CFO: “The strong demand for homes, combined with a limited supply has allowed us to continue to raise prices and maintain a very low level of sales incentives in most of our communities.” “Bill Wheat — Executive Vice President and Chief Financial Officer: Our gross profit margin on home sales revenues in the second quarter was 28.9%, up 150 basis points sequentially from the December quarter. The increase in our gross margin from December to March reflects the broad strength of the housing market. The strong demand for homes, combined with a limited supply has allowed us to continue to raise prices and maintain a very low level of sales incentives in most of our communities. On a per square foot basis, home sales revenues were up 4.8% sequentially. While stick and brick cost per square foot increased 2.5% and our lot cost increased 2.8%. We expect our cost will continue to increase. However, with the strength of today’s market conditions, we expect most cost pressures to be offset by price increases in the near term. We currently expect our home sales gross margin in the third quarter to be slightly better than the second quarter. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Hortons said it slowed “sales orders based on production capacity… we made the decision in several of our geographies to delay the release of homes until we could give a better delivery date to those customers.” “Mike Murray — Executive Vice President and Co-Chief Operating Officer: Carl, I think it was all our decision to slow sales orders based on production capacity. I think we saw and continue to see very good demand and more buyers, qualified buyers out there for our homes today when we release them for sale. But we did see during the quarter that our cycle times continue to extend, and we made the decision in several of our geographies to delay the release of homes until we could give a better delivery date to those customers and provide a better experience for them in the backlog process. So we saw a very strong demand in the quarter, but we did see the cycle times elongate. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

A D.R. Horton’s executive noted that even if cancelations increased, “for those buyers that do unfortunately fall out because they can’t qualify, there’s no shortage of buyers behind them to take their place.”“Jessica Hansen — Vice President, Investor Relations: Sure, Anthony. I mean we look at a 1% change in our cancellation rate is essentially flat. It’s still abnormally low — historically low. We typically run in the high teens to low 20s. And that’s a can rate we’re very comfortable running at. The main reason continues to be that buyers can’t ultimately qualify for the home purchase. So that 15%, 16%, 17% wherever it falls out each quarter, really no concerns from us on that end. In terms of the rate sensitivity analysis, we did run the same sensitivity as we’ve talked to each of the last few quarters. I think rates have already kind of run-up to where that was run at a couple of weeks ago, as we prepped for this call, but it had only ticked up to, call it, roughly 10% of buyers and backlog today would be at risk. As I mentioned earlier in answer to another question, all of April is already rate locked if we’re going through a mortgage company. So that piece wouldn’t be at risk. And then we also would work to look to move people from a different loan product or see if they could document additional income. And then to kind of second some things that the guys have already said today, for those buyers that do unfortunately fall out because they can’t qualify, there’s no shortage of buyers behind them to take their place.” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton’s CFO: “we have seen consistent ability to raise prices through the quarter, seeing consistent increases in our sales order pricing that then flow through our backlog and through our closing pricing.”“Bill Wheat — Executive Vice President and Chief Financial Officer: Mike, we have seen consistent ability to raise prices through the quarter, seeing consistent increases in our sales order pricing that then flow through our backlog and through our closing pricing. That’s what gives us the confidence to say that our margins are going to be slightly better next quarter because we can see those sales prices coming through in our closings in the next quarter. So to date, we have not seen a change in our ability to raise prices. I think naturally as we look for a little bit longer term with the impact of rates and impact of overall price increases. At some point, we would expect that to moderate. But at this point, we have not seen any signs of that as of yet.” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton reported spending over $600 million on share buybacks and dividends over the fiscal year and authorized another $1 billon in buybacks. “Bill Wheat — Executive Vice President and Chief Financial Officer: At March 31st, our stockholders’ equity was $16.8 billion, and book value per share was $47.66, up 33% from a year ago. For the trailing 12 months ended March, our return on equity was 34%, compared to 27.1% a year ago. During the first six months of the year, our cash used in homebuilding operations was $416 million, which reflects our increased homes and inventory to meet demand and the impact of extended construction cycle times. During the quarter, we paid cash dividends of $79.1 million, and our board has declared a quarterly dividend at the same level as last quarter to be paid in May. We repurchased 3.1 million shares of common stock for $266 million during the quarter for a total of 5.8 million shares repurchased fiscal year to date for $544.2 million, an increase of 30% compared to the same period a year ago. Subsequent to quarter end, our board authorized the repurchase of up to $1 billion of our common stock, replacing our prior authorization. The new authorization has no expiration date. We now expect to reduce our outstanding share count by 3% during fiscal 2022. ” (D.R. Horton Q2 2022 Earnings Call Transcript, 4/26/2022)

D.R. Horton said rising interest rates were leading to less home construction

D.R. Horton’s CFO told analysts the company was starting fewer homes in response to market conditions. “Paul Romanowski — Executive Vice President and Co-Chief Operating Officer: We started fewer homes this quarter as we work to position our inventory with an appropriate number of homes relative to market conditions. We started 13,100 homes during the quarter in our homebuilding operations as we began negotiations to lower our construction costs on future new home starts. We ended the year with 46,400 homes in inventory, down 3% from a year ago and down 18% sequentially. Twenty-seven thousand two hundred of our total homes at September 30 were unsold, of which 4,400 were completed.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton’s CEO: “the discipline in the industry today is it has translated into across-the-board slowdown in starts.” “David Auld — President and Chief Executive Officer: You know, Carl, just — we’ve talked about it, I think, for a while, but just the discipline in the industry today is it has translated into across-the-board slowdown in starts. And I think it will allow the trade base material suppliers to kind of get the feet under them. And I’ve been accused of being overly optimistic at times, but I do think 2023 if the industry stays disciplined, we will get back into a situation where we can sell a house, now what it’s going to go and what are we going to be able to deliver and that will be a good thing.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton’s CEO: “ if we continue to see 100 basis point increase quarter to quarter to quarter, I think it’s going to be a very challenging year”“David Auld — President and Chief Executive Officer: It depends on what the capital markets and interest rates do. I mean, it’s — if we see stabilization in interest rates, I feel very optimistic about what we can do this year. if we continue to see 100 basis point increase quarter to quarter to quarter, I think it’s going to be a very challenging year.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton reported lower sales and more cancelations

D.R. Horton said net sales orders decreased 15% in the fourth quarter and their cancelation rate increased to 32% compared to 24% in the previous quarter. “Paul Romanowski — Executive Vice President and Co-Chief Operating Officer: During the quarter, we continued to sell homes later in the construction cycle to better ensure the certainty of the home close date and mortgage rate for our homebuyers with almost no sales occurring prior to start of home construction. Our net sales orders in the fourth quarter decreased 15% to 13,582 homes, and our net sales order value was down 10% from the prior year to $5.4 billion. Our cancellation rate during the fourth quarter was 32%, compared to 19% in the prior-year quarter and 24% in the third quarter. Our average number of active selling communities increased 8% from the prior year and was flat sequentially.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton argued that limited supply still drove demand in the housing market, with prices higher than last year

D.R. Horton’s CEO said while rising mortgage rates was turning off buyers, “the supply of both new and resell homes at affordable price points remains limited and the demographics supporting housing demand remained favorable.” “David Auld — President and Chief Executive Officer: In June, we began to see a moderation in housing demand that has continued and accelerated through today. The rapid rise in mortgage rates, coupled with high inflation and general economic uncertainty, have made many buyers pause in their home-buying decision or choose to not move forward with their home purchase. However, the supply of both new and resell homes at affordable price points remains limited and the demographics supporting housing demand remained favorable. The uncertainty of this market transition may persist for some time and could get more challenging if mortgage rates continue increasing.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton reported a 23% increase in home sales revenue and a 17% increase in average closing price over the previous year. “Mike Murray — Executive Vice President and Co-Chief Operating Officer: Diluted earnings per share for the fourth quarter of fiscal 2022 increased 26% to $4.67 per share. And for the year, earnings per share increased 45% to $16.51. Net income for the quarter increased 22% to $1.6 billion. And for the year, net income increased 40% to $5.9 billion. Our fourth-quarter home sales revenues increased 23% and to $9.4 billion on 23,212 homes closed, up from $7.6 billion on 21,937 homes closed in the prior year. Our average closing price for the quarter was $403,700, up 17% from last year and up 3% sequentially. We closed fewer homes than we expected during the fourth quarter due to a slower sales pace, increased cancellations, and continued construction delays.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton said their average sales price had decreased 4% from the previous quarter but remained 6% higher from the previous year. “Paul Romanowski — Executive Vice President and Co-Chief Operating Officer: The average sales price on net sales orders in the fourth quarter was $399,600, up 6% from the prior year but down 4% sequentially from the June quarter. In October, as mortgage rates continue to increase, our net sales orders were below prior-year levels, and our cancellation rate remained elevated. As a result, we currently expect our first quarter net sales orders to be down approximately 25% to 35% year over year. “ (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton saw a growing business in building properties to be sold for rentals

D.R. Horton predicted growing business in their multi-family and single family home constructions sold as rental properties. “Mike Murray — Executive Vice President and Co-Chief Operating Officer: Also, one multifamily project and multiple single-family rental projects that were expected to be sold and closed in the fourth quarter were delayed due to changes in the capital markets that affected the timing of buyers’ financing. Our rental property inventory at September 30 was $2.6 billion, which included approximately $900 million of multifamily rental properties and $1.7 billion of single-family rental properties. As a reminder, our multifamily and single-family rental operating results are separately reported in our rental segment and are not included in our homebuilding segments homes closed revenues, or inventories. We expect our rental operations to generate significant increases in both revenues and profits in fiscal 2023 as our platform matures and expands across more markets.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton’s COO: “our approach to the single-family rental business is to build communities of traditional single-family homes. Rent those up and stabilization and then sell them to typically institutional owners of that sort of residential asset class.”“Mike Murray — Executive Vice President and Co-Chief Operating Officer: So, our approach to the single-family rental business is to build communities of traditional single-family homes. Rent those up and stabilization and then sell them to typically institutional owners of that sort of residential asset class. It’s about $1.7 billion, I think, is our current investment in the single-family rental platform. We expect that’s going to grow during ’23. Depending upon market conditions, probably not more growth than we had from the end of ’21 to the end of ’22, but we do expect growth in ’23. And we still see that when we complete the homes and they go to market to lease, there’s still good demand and people are needing a place to live, and they’re choosing to live in these communities.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton suggested it would have more money available to spend on buybacks, adding to the $1 billion it spent in 2022

D.R. Horton responded affirmatively to an analyst who asked if less money spent on home building would lead to more money on stock buybacks. “’Susan Maklari — Goldman Sachs — Analyst: Yes. OK. And then can you talk a bit about capital allocation? As the market is changing, how are you thinking about the different uses of cash and especially maybe any thoughts on buybacks as we think about 2023?’ ‘Bill Wheat — Executive Vice President and Chief Financial Officer: You know, Sue, we’ll continue to take a balanced approach to it all. We’re in a good, flexible position to be able to continue to provide returns to our shareholders, both in the terms of increased dividends and share repurchases. Obviously, we’ll be adjusting in our business and how much we invest into land and to help home starts and into our rental business based on market conditions. But at a base level, we do expect to generate an increase in our homebuilding cash from operations in fiscal 2023. And with that, that gives us even more flexibility to make those relative decisions but continue with more of the same in terms of the balance and the consistency in the approach.”’ (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)

D.R. Horton reported spending over $1 billion on stock buybacks in the first nine months of 2022. “Bill Wheat — Executive Vice President and Chief Financial Officer: At September 30, our stockholders’ equity was $19.4 billion, and book value per share was $56.39 and up 35% from a year ago. For the year, our return on equity was 34.5%, an improvement of 290 basis points from 31.6% a year ago. During the quarter, we paid cash dividends of $78.2 million for a total of $316.5 million of dividends paid during the year. During the quarter, we repurchased 3.6 million shares of common stock for $251.7 million for a total of 14 million shares repurchased during the year for $1.1 billion.” (D.R. Horton Q4 2022 Earnings Call, 11/9/2022)